Published in Labor Forum, new series, Vol. 1, No. 1, May-July 1991, pp. 9-12.
The 1990 National ALP Conference rhetoric lived up to expectations. However, the mood of most delegates seemed to this participant to be fairly relaxed. Even though some of the words were fiery, the hearts of most delegates were not alight with passion. Perhaps this is a good thing: who could object to calm and reasonable debate? Only unsmiling dogmatists would regard this as ‘repressive tolerance’. The Conference focused on two major areas of government enterprise: telecommunications and airlines. This brief article will concentrate on the new airlines policy. I have more detailed knowledge of the airlines than telecommunications. That’s partly because of what I learnt as a member of the ALP Airlines Funding Committee, which was set up after the previous National Conference.
The 1990 Conference adopted two resolutions relevant to this article. One resolution allows up to 100 percent of Australian Airlines to be sold and up to 49 percent of Qantas. However, it is not mandatory that the government act immediately, or at all. The Conference has given the government the discretion, within those limits, to decide what’s best.
Another resolution urged that there be consultation with the unions in the process of privatisation of government enterprises and that working conditions be protected as much as reasonably possible.
In discussing the outcomes of the ALP Conference, this article will examine the merits of the approach adopted at the Special ALP Conference and outline what might be the transition process in the partial or whole privatisation of the airlines.
A few annual NSW State ALP Conferences ago, I moved an amendment to the Economic and Trade Committee Report on the issue of privatisation. My amendment proposed that the party should draw up special charters for government business enterprises. In looking back, I’m half pleased and half embarrassed by what I moved. It is appropriate to consider what the purpose of a government enterprise might be. That cannot be decided in the abstract; each case must be examined on its own merits.
In the debates within the ALP about the future of Australian Airlines, Qantas and telecommunications, it is reasonable that each and every Labor member examine what is the social justification for government involvement. That’s an issue that begs consideration as to whether what might have been sound in 1947, for example, is any longer appropriate. It is an issue that causes me to wonder whether government’s role should be simply to regulate rather than to regulate and own, or to regulate and partially own. So I think it was sensible to speak in terms of social charters for various government entities, because that idea required that some core issues be examined. That much I’m happy with.
But it now seems clear what then seemed misty: if in the 1990s we are struggling to invent social charters for government business enterprises then, perhaps, the search for such objectives is revealing about barrenness in thinking. Let me explain what I mean. Subsequent to that State ALP Conference, I attended one meeting of the ALP Airlines Funding Committee and encountered a delegation from Australian Airlines. They arrived to present their case about the airline’s funding difficulties. One member of our committee asked a question: “What’s the purpose of Australian Airlines?” It was as if a pistol shot had been fired. The reaction was one of stunned silence. Someone from Australian Airlines proffered the view “to put planes in the air”. That didn’t seem exactly right. So quickly came the rejoinder that the Australian Way was to offer a first class air service to the customer and to deliver customers on time, efficiently and safely to their destinations.
In my judgement, those aims are worthy and, especially in today’s climate, tough criteria. But what business is it of government to be involved in the actual ownership of the whole thing? I’ll be damned if a compelling argument can be found. Significantly, no-one at that meeting could recommend any rationale for Australian Airlines which might approach anything remotely worthy of inclusion in a social charter (as distinct from regulatory requirements applicable to all the commercial airlines). So far as I am concerned, no such charter can be invented and we might as well all admit this fact. Hence, my attitude to the issue of the ownership of Australian Airlines and Qantas is based on my pessimistic assessment that no worthwhile public good is achieved through their retention under government ownership. In John Donahue’s book The Privatisation Decision: Public Ends, Private Means (Basic Books, 1989), he comments that:
The choice between public and private has two basic dimensions. The first dimension concerns financing. Should we pay for some good or service individually, out of our own resources, or should we pay for it collectively with funds raised through one form or another of taxation? The second dimension concerns performance. Should the good be produced or the service delivered by a governmental organisation or by a non-governmental organisation?
Those criteria, when applied to the airlines, lead to the argument that first, it seems mildly obscene to insist that taxation revenue should be used to fund the risky business of airlines competing in difficult markets. Second, there is no reason to believe that the performance of the airlines is in any sense improved or helped by government as distinct from private ownership or equity.
Let me elaborate. Why should a worker at Bankstown, Balmain or Bega be required through their taxes to pay for and, through government support, underwrite the viability of such businesses? If there are any arguments in favour of such philanthropy, I doubt that they have any relation to realistic ideas concerning socialism or social justice. Moreover, once it is accepted that the airlines should be run strictly on business lines, so that they act exactly like private companies, it must be asked whether the light is worth the candle. Why bother?
Handling the transition from wholly government owned airlines to partially privatised entities is going to be a major test of the Federal government’s fitness to manage the nation’s assets. These difficulties are especially acute in a period of recession and in the aftermath of airline deregulation. It would have been easier for some changes to occur if the protracted pilots’ dispute of 1989/1990 had not happened. That dispute affected the profitability of both Australian and Qantas airlines. In early 1991 the possible sale of government owned airline assets could hardly happen at a worse time.
The last thing the government should do is to throw its hands up in the air and hope for better times ahead. Of course this is not happening; the government shows every sign of robustly pursuing changes in the airlines. Even if the sale of airline assets is delayed or if not as much equity will be placed on the market as was once hoped, some other things need to occur. For example, the government should closely examine the competence of management and board members of both airlines.
My impression is that Australian Airlines is performing reasonably well in a tight market. It has a capable board. It seems to be moving in a logical direction by pursuing equity partnerships with JAL and some other airlines. What it probably needs is an injection of equity and management support from a major company with expertise in transport.
For example, the Brambles transport company, which is a growing and profitable Australian company and which has done very well in Europe in recent years, is one company which may have an interest in acquiring a share in Australian Airlines. Hopefully, the government will regard it as important that such a strategic shareholder owns part of Australian Airlines. If the whole stock is floated with the institutions acquiring the bulk of shares, without a Brambles or a Mayne Nickless or somesuch, the long term viability of Australian Airlines might be much weaker than otherwise.
Qantas is a much more problematic case. Its profitable routes – Japan, Hong Kong and America – are sustained by restrictions on other carriers competing for landing rights in Australia. These routes may be subject to more competition in the future, thereby undermining the profitability of Qantas. The company is over-staffed, with an administrative overhead much too large. The Board is weak and management overhauls in the last five years raise serious questions about the depth, competence and vision of senior management.
I am not sure that filling the Board with retired captains of protected manufacturing businesses is exactly the kind of fresh blood needed by the Board. It is disturbing that management has become so excited by equity partnerships with British Airways and/or an American Airlines. They would seem to be the least logical connections and if such an equity structure was adopted by Qantas, it would become a matter of time before Qantas is confined to a role of a small time regional carrier.
So far there have been no serious negotiations with Cathay Pacific, an airline which might seek another partner to the Swire Group in the lead up to Hong Kong’s incorporation into China in 1997. There are difficulties with this suggestion. Cathay has argued that Hong Kong to Britain flights count as internal British routes and has fought to limit other carriers servicing this route. Qantas and Cathay currently service the Australian-Hong Kong route. A merger may throw that open to another carrier. But I doubt that a merger necessarily leads to the distinctive Qantas and Cathay identities disappearing into a new name. In any event, with Asia growing as a source of international airline travel, it would seem to be in Australia’s long-term interest that an equity relationship exist between Qantas and such an airline. Hopefully, Qantas will not agree to something based on what is offered by the first people who knock on their doors.
Another issue worth exploring is what role Ansett Airlines should play. Ansett is 49 percent owned by TNT, which is one of the world’s most important transport companies. TNT leases an enormous range of planes to various airlines around the world. This is one of the core components of its business. In actual fact, Australia has two major international airline companies: Qantas and TNT. At the moment, the government is keen on insisting that it will not favour Ansett with the looming changes to Qantas and Australian Airlines. But this quest to be fair has its risks. Is it really fair to Australia’s national interests that a merger between TNT and Qantas be forbidden?
Given the current economic difficulties confronting a great many international airlines and the problems faced by Australia – with a relatively small domestic base market in sustaining an international carrier, it may be in Australia’s interests that the managerial and equity support of TNT be incorporated into Qantas. Ruling this possibility out of court as a matter of ‘principle’ seems to be a mindless approach, whatever may be the political sensitivities.
This article has sought to put forward a few indicators as to what might be the future directions of government policy. A fundamental policy objective must be to make sure that the end product, whether partly or wholly privatised, is in a good position to add to the wealth of Australia, through employment, training of employees, growth in revenues and profitability. Donahue summarises a compelling approach:
An openness to privatisation by no means implies contempt for government bureaucracy. Productive efficiency is simply not the cardinal virtue of civil service organisation. Public agencies characteristically are structured to guarantee due process and administrative fairness, to ensure that all considerations get proper weight and that no citizen’s rights are violated. Governmental institutions hew to these values for excellent reasons.
But such an orientation is at odds with the unencumbered administrative flexibility and concentrated decision-making authority that allows for the fastest technical adaptation and the greatest devotion to cost control. Different organizational designs have difficult virtues and defects. The trick is to match the design to the task, choosing civil servants where procedural fairness matters most, choosing profit-seekers where productive efficiency matters most.
In designing an airline policy fit for social democrats (and the community!) it seems that the regulatory environment, rather than actual ownership, is the most appropriate focus for government activity. That can involve a good deal, including requirements that there be fair competition, contestability of airport port rights, honorable business practices and requirements that key population centres be serviced in exchange for air routes. It should be a good thing that the ALP, in a spirit of tolerance and innovation, is now searchingly examining traditional policies and thinking. That should be one positive outcome from the privatisation debate.
Hopefully, those who approach the privatisation debate with the same orthodoxy as a bench of Bishops will not gain much credence. The debate is fascinating and important. But that should not obliterate consideration of an equally fascinating question: what now should be done – how should the transition be handled? All of us involved in the debate would do well to remember that the physical difference between having your ear close to the ground and having your head buried in the sand may not be great, but the difference is real and with live consequences.
Looking back, it is interesting that this debate had to be won.
That’s what I set out to do: to explain to a Labor audience why privatisation of airlines made sense – and suggesting that rather than government ownership, the type, extent and detail of regulation was the key consideration.